According to Sean Callow, analyst at Westpac, AUD/JPY cross reached what are likely to be this year’s highs just above 80 in late April, then commenced a slide to the 75 handle in mid-May.
Key Quotes
“Undermined by the scramble to price in RBA easing after Australia’s low Q1 CPI data and then amplified by the re-ignition of the US-China trade war in early May.”
“This 5 yen slide inside a month is not very mysterious. However, the relatively tight trading ranges since mid-May are a little surprising given how far Australian yields have fallen and the deepening public tensions between the US and China.”
“One supportive factor is positioning, with real money accounts record short A$ in futures markets. Commodity prices are mixed for the Aussie, with metals prices weak but iron ore back above $100/tonne.”
“Reinforcing JPY demand from its safe haven role, the Bank of Japan has largely sat on its hands in recent months even as the 2% inflation target remains well out of reach and the sales tax rise looms in October. The pace of JGB purchases has fallen further below the supposed JPY80trn annual pace.”
“AUD/JPY may enjoy occasional positioning-driven bounces, but without major progress on US-China trade, multiweek risks are to 73-74.”
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